The meaning of “act of soliciting a person to guarantee revenues, such as guaranteeing principal of investment,” and whether an act of providing a conclusive judgment or soliciting a person to make a transaction by notifying an uncertain matter that is likely to mislead the person to believe that he/she is certain, is included in such act (negative)

Article 57(1)1 and Article 182 subparag. 10 of the former Indirect Investment Asset Management Business Act (amended by Act No. 8516, Jul. 19, 2007; hereinafter the same) provide that “No solicitation shall be made by providing a conclusive judgment that guarantees profits, such as guaranteeing principal of investment, shall be made,” and Article 49 subparag. 2 of the former Securities and Exchange Act provides that “No solicitation shall be made by providing a conclusive judgment that guarantees profits, without incurring principal loss,” and Article 55 subparag. 1 and 3 of the former Securities and Exchange Act provides that “no financial investment business entity shall provide a conclusive judgment on uncertain matters in making investment recommendations, or give notice that it may mislead its executives to believe that it is certain” or “any other acts of soliciting investors to purchase and sell securities, such as soliciting investors to buy and sell securities, which are in violation of Article 57 subparag. 1 and subparag. 10 of the former Securities and Exchange Act (amended by Act No. 8513, Mar. 28, 2007).

Article 12(1) of the Constitution of the Republic of Korea; Article 1(1) of the Criminal Act; Article 57(1)1 of the former Indirect Investment Asset Management Business Act (Amended by Act No. 8516, Jul. 19, 2007; see Article 49 subparag. 2, Article 55 subparag. 1, and 3 of the current Financial Investment Services and Capital Markets Act); Article 182 subparag. 10 (see Article 45 subparag. 6, and 10 of the current Financial Investment Services and Capital Markets Act); Article 52 subparag. 3 of the former Securities and Exchange Act (Amended by Act No. 8315, Mar. 29, 2007; see Article 49 subparag. 2 and 5 of the current Financial Investment Services and Capital Markets Act); Article 57(1)1 and (3) of the former Indirect Investment Asset Management Business Act (Amended by Act No. 8516, Jul. 19, 2007; see current Article 42 subparag. 13(1) of the former Securities and Capital Markets Act

Defendant

Defendant

Attorney Choi Tae-tae et al.

Seoul Central District Court Decision 2011No1493 Decided August 17, 2011

The judgment of the court below is reversed, and the case is remanded to the Seoul Central District Court Panel Division.

The grounds of appeal are examined.

1. The interpretation of penal provisions shall be strict, and the interpretation of penal provisions in the direction unfavorable to the defendant shall not be permitted because it is against the principle of no punishment without the law to interpret the meaning of penal provisions excessively or analogically in the direction unfavorable to the defendant (see Supreme Court Decisions 2002Do4758, Nov. 24, 2005; 2007Do1475, Sept. 20, 2007, etc.).

Article 57(1)1 of the former Indirect Investment and Assets Management Business Act (amended by Act No. 8516, Jul. 19, 2007) provides that “any officer or employee in charge of the sales business shall not make solicitation to guarantee profits, such as guaranteeing investment principal,” and Article 182 Subparag. 10 of the same Act provides that any person who violates the above provision shall be punished.

Article 52 subparag. 1 and 3 of the former Securities and Exchange Act (amended by Act No. 8315 of Mar. 29, 2007) provides that "no financial investment business entity shall offer a conclusive judgment that assures profits, such as guaranteeing investment principal, and does not guarantee profits." Article 49 subparag. 2 of the current Financial Investment Services and Capital Markets Act provides that "no financial investment business entity shall provide a conclusive judgment on uncertain matters in making an investment recommendation or inform information that is likely to mislead an uncertain one to believe that it will be certain," and Article 55 subparag. 1 and subparag. 3 of the same Act separately prohibits an act of promising an investment investor to guarantee certain profits in advance and an act of guaranteeing investment investors from guaranteeing profits, including acts of guaranteeing investment principal, and an act of guaranteeing investment principal, which violates Article 52 subparag. 3 of the former Securities and Exchange Act (amended by Act No. 8315 of Nov. 8, 2006) and Article 52 subparag. 13 of the former Enforcement Rule of the Securities and Exchange Act (amended by the Financial Supervisory Commission’s No. 7 of the former Securities and Exchange Act).

2. The facts charged of the instant case reveal that “the Defendant recommended Nonindicted 2 as an employee in charge of sales business of indirect investment securities at Nonindicted 1 Co., Ltd., the selling company of indirect investment securities, to subscribe to the instant fund, which is the ES product, and there is no possibility that the funds from which the principal would actually incur any loss. The funds from which the principal would have been incurred are not yet lost, and the funds have been repaid at a multiple early stage, and the individual paid 100% early from 2004 to 10% early. In fact, even if the principal would have been actually made even if the principal would not incur any loss, the Defendant recommended to guarantee profits, such as guaranteeing the principal of the investment.” Accordingly, even according to the contents stated in the facts charged, the Defendant merely provided a conclusive judgment on the matters that the principal would not incur any loss or made a mistake that it would have caused any loss of principal, or recommended the Defendant to make a trade in advance, and it cannot be deemed that the principal or profits would have been guaranteed or promised.

The circumstances of the lower court, such as that the Defendant provided false information on the profit structure to Nonindicted 2 without sufficiently explaining the possibility of principal loss, etc., and the Defendant was liable to compensate Nonindicted Company 1 to Nonindicted 2, to which the Defendant belongs, cannot be deemed to have committed an act of soliciting the Defendant to guarantee the principal of the investment, etc.

Nevertheless, the court below, solely on the grounds stated in its reasoning, deemed that the Defendant’s act constitutes “act of soliciting people to guarantee revenues, such as guaranteeing investment principal,” as stipulated in Article 57(1)1 of the former Indirect Investment Asset Management Business Act, and found the Defendant guilty of the facts charged. In so doing, the court below erred by misapprehending the legal principles on the interpretation of Article 57(1)1 of the former Indirect Investment Asset Management Business Act and the principle of no punishment without law, which affected

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)